Markets price 23 basis points of ECB tightening for June, but the euro shows minimal reaction amid growth divergence with the US.
The euro remains rangebound against the US dollar despite increased bets on a European Central Bank rate hike in June. Markets now price 23 basis points of tightening at the June 11 meeting, following comments from ECB official Isabel Schnabel supporting a move even if geopolitical risks ease.
Eurozone GDP growth forecasts stand at 0.8% for the year, sharply below the US projection of 2.1%. The Federal Reserve’s rate hike cycle is not fully priced until next year, widening the policy divergence. Positioning data shows modest euro longs after a sharp decline earlier this year.
Analysts expect EUR/USD to trade near 1.14 by year-end but note upside risk to 1.18 if cease-fire extensions and improved trade flows materialize.